*Advisers who ignore suspicious client activity risk fines
*Broker, supervisor overlooked client Ponzi scheme signs
By Suzanne Barlyn
NEW YORK, Dec 14 Financial advisers take heed:
Ignore troubling signs that a client may be committing fraud in
a brokerage account and you could be in trouble too.
As a former adviser and his supervisor at a unit of Raymond
James Financial Inc learned, it can lead to public
rebuke and fines.
Their offense? Not alerting the firm's anti-money
laundering officers to suspicious activity in a client's
They couldn't have picked a worse situation to ignore. The
client was running a Ponzi scheme and was later sentenced to 20
years in jail, according to settlements with the Financial
Industry Regulatory Authority.
Financial advisers are key in helping a firm sniff out
possible client financial crimes, from local frauds to
funneling money to a terrorist operation.
The USA Patriot Act, Bank Secrecy Act, and other industry
rules require employees of financial institutions -- from bank
tellers to compliance officials -- take measures aimed at
deterring those types of crimes. Those responsibilities often
trickle down to employees who have the most direct contact with
clients. A bank teller, for example, could be subject to
potential civil or criminal penalties for ignoring when a
customer tries to avoid tax paperwork.
Securities industry regulators only began emphasizing the
role of advisers in those tasks about two years ago, mostly by
calling out advisers who do not take the responsibility
seriously, said Aaron Fox, managing director of IPSA
International Inc., a New York-based risk advisory firm.
"This is part of the maturing of anti-money laundering
regulation," said Fox.
Sanctions against advisers were once unusual, even in cases
where clients engaged in criminal behavior through brokerage
accounts, she said.
"Now... there is front-line accountability," said Fox.
A client's nefarious activity isn't always obvious. But
discussing even small concerns with a supervisor can be a big
step toward staying out of trouble.
Timothy E. Dixon, the former Raymond James adviser, learned
that lesson the hard way. Dixon had a client with a large
account who traded frequently, according to a FINRA settlement
order. That client profile appeals to advisers because of the
potential for big commissions.
But in this case, it signaled danger.
The client, Jerry Rose, pooled funds from about 200
investors in various brokerage and bank accounts, according to
Ohio securities regulators. He used funds from new investors to
pay earlier investors.
Rose owed investors about $25 million when he plead guilty
to felony charges in 2008, according to state regulators. It is
unclear whether other brokerages were involved.
Dixon ignored "red flags" in Rose's accounts, according to
a FINRA settlement.
Anti-money laundering officers at Raymond James, for
example, asked Dixon to explain the "substantial flows of funds
in and out of" Rose's accounts. They also asked why he wrote
checks in round-dollar amounts, according to the settlement.
Dixon relied on a years-old explanation from when Rose opened
the account, that he had "extensive dealings" in various
Other red flags went unreported, in violation of the firm's
policy. For one, an Ohio Grand Jury was investigating Rose.
An office supervisor, Harold D. Criswell, also didn't
report suspicious activity to the firm's anti-money laundering
officers, even after Rose told Criswell that he was expecting a
prison sentence, according to a FINRA settlement.
Dixon agreed to a four-month suspension and $15,000 fine.
Criswell agreed to a 30-day suspension from acting as a
principal and a $10,000 fine, according to settlement
documents. Neither admitted to nor denied FINRA's findings.
A phone number listed for Dixon was not working. Criswell
did not respond to a call and email requesting comment. A
Raymond James spokesman declined to comment.
Advisers are a firm's first line of defense in complying
with federal laws designed to prevent fraud and other crimes,
said Aaron Kahler, Director of Anti-Money Laundering Advisory
Services at ICS Risk Advisors in New York. But they're not
alone in the task.
Compliance and anti-money laundering departments also
monitor for problems, he said.
"Know-your-customer" questions, often developed by a firm's
compliance department, can establish a benchmark for advisers.
Questions can include how frequently clients plan to trade
and whether they'll use a check or wire transfer to deposit
"You want to know what type of transactions will be put
through," said Kahler. "If all of sudden there was trading in
way more money than usual, that is something the (adviser) and
supervisor should take notice of."
Each firm has its own policy for questioning and reporting
suspicions about clients. Notifying a supervisor and asking the
client for an explanation are typically first steps.
Questions should arise if funds flow in and out of a money
market account when a client isn't trading securities, or when
a new client who wants to consolidate multiple accounts from
other brokerages, said Alma Angotti, a director at Navigant
Consulting Inc .
"It's very tempting when you're dealing with a lucrative
client not to ask some of the questions that you could have --
or accept some answers that don't make a lot of sense," she